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Does a math formula from the 1990s help enterprise developers make smarter decisions today?


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Metcalfe’s law of network effects states “that the value of a network is proportional to the square of the number of the nodes on the network”

In #digital businesses, a lot of the value lies in its ability to connect with external partners. In this digital era, the more #connections = the more value.
When creating a web of digital connections, someone no longer represents a single role in a chain of command, rather they have the capabilities of taking on a combination of roles through the multitude of connections: customer, supplier, partner, competitor, each role adding more value. The value of the initial node doesn’t simply increase in value, the whole network does too.
In traditional business, these roles are often separated in the way that we interact and utilise them and therefore the potential value is decreased.
Recent research has applied #Metcalfe‘s law to digital #blockchain networks as well as #social media networks and #ICO investments, all of which appear to follow the trend and even surpass the trend. The value has been proven to continue to increase once an optimum number of users is reached; meaning that the number of nodes in the network has stopped expanding but the value of the network has not. This may be due to the continual expansion of roles one node is acting as.
It has proved a useful tool for ICO investors, who cannot rely on traditional valuation mechanisms to evaluate digital startups.
In light of Metcalfe’s findings, many are rethinking the way in which they build their digital strategy and presence.